The Aussie gave ground on Wednesday. Despite the increased monthly inflation in Australia, AUD/USD was actively falling, driven by the overall strengthening of the US dollar. The downward movement is primarily due to the strength of the greenback, so short positions remain risky. First, the US currency can't seem to settle on a direction. On Tuesday, the US Dollar Index slid to the lower part of the 98 range, but on Wednesday it set a new local high (98.64). Such impulsive and, more importantly, contradictory index movements are not trustworthy, making AUD/USD sales just as risky now as buying.

Second, the Aussie could well remind traders of its potential as soon as dollar bulls loosen their grip. The market has completely and unjustifiably ignored the latest inflation report. This data release will make itself felt—particularly at the next Reserve Bank of Australia meeting on September 30.

According to the data, the Consumer Price Index (CPI) in July accelerated to 2.8% after falling to 1.9% in June. The reading landed in the "green zone," as most analysts had expected a more modest rise—to 2.3%. July saw the strongest pace of monthly inflation growth since July 2024.

The breakdown shows that the sharpest price rise was for electricity, soaring 13%. This key driver pushed up July's CPI. However, it's important to note this was a temporary spike, triggered by residents of New South Wales and the Australian Capital Territory not receiving federal energy subsidies last month. Authorities have already announced that subsidy payments will resume this month, reducing future inflationary pressure.

Still, July CPI growth was not just due to electricity. Other contributors included alcohol and tobacco (+6.5%), housing services (+3.6%), and food and non-alcoholic beverages (+3.0%). Inflation in tourism also sped up (thanks to the school holiday season).

As noted above, energy subsidies will be in effect starting in August, and tourism typically declines after the school holidays end.

However, it's notable that core inflation (trimmed mean) rose to 2.5% in July after hitting 2.1% the previous month. CPI excluding volatile categories (vegetables, fruit, fuel) and tourism (seasonal travel and accommodation expenses) jumped to 3.2% (an annual high). This suggests broad inflationary pressures even without unstable expenditure categories.

The report should be viewed through the lens of the RBA's August meeting, where the minutes stated there is no predetermined rate-cut path—policy easing will depend on incoming data and the balance of global risks. A gradual scenario will unfold if the Australian labor market remains robust and inflation stays on track toward the 2–3% target range.

On the one hand, the RBA prioritizes quarterly CPI dynamics (Q3 data is released at the end of October). However, the release is the "first part" of future quarterly data. If the monthly inflation uptrend continues for August and September, Q3 CPI may also show significant growth—after dipping to 2.1% in Q2.

In other words, the July CPI jump significantly reduces the likelihood of a rate cut at the September RBA meeting, as it reflects pressure not just from volatile categories (such as electricity), but also from sustained consumer sectors. The fate of a rate cut in November will hinge on the monthly CPI dynamics for August and September. If the indicators keep accelerating, the Q3 Consumer Price Index could end up above 3%—exceeding the central bank's target range. This would put pressure on the RBA regarding further monetary easing, especially if labor market tightness persists.

Given these fundamentals, short AUD/USD positions look risky—especially against the backdrop of DXY fluctuations. As we can see, sellers have failed to break through the intermediate support at 0.6450 (the Kijun-sen line on the daily chart), despite the impulsive nature of the drop. If bearish momentum wanes in this price area, it might make sense to consider a long position targeting 0.6500 (the upper edge of the Kumo cloud on the same timeframe).